Are student loan borrowers playing the system on loan forgiveness?
President Joe Biden is a big fan of federal student loan forgiveness. He campaigned for the presidency on the promise and his administration looks set to roll out a loan forgiveness program this summer.
According to a study by smart LLC, the Biden administration is set to cancel up to $10,000 in federal student loans per borrower. The announcement of the new policy seems imminent.
At the same time, student borrowers are watching the issue closely, with many banking on the president’s promise to take out more student loans since he took office.
Smart took a close look at the number of college students who have taken out federal student loans since January 2021.
What they found is startling: 86% of the 1,000 students surveyed said they had recently taken out a student loan based largely on the president’s pledge to forgive student loans.
Additionally, the study found that . . .
- Nearly 1 in 3 say they’re unlikely to continue school if Biden doesn’t keep his pledge
- Majority remains confident president will forgive at least some student loan debt
- Nearly one in three borrowers who identify with the Democratic Party are unlikely to vote for Biden in the next election unless he receives loan forgiveness
- 70% say they are confident (35%) or somewhat confident (35%) that they will cancel $10,000 of student debt per borrower. An overwhelming majority of 90% say it would be very helpful (60%) or somewhat helpful (30%) to them personally.
- 71% are very confident (30%) or somewhat confident (41%) that Biden will go beyond his initial campaign promises and cancel most or all of the federal student loan debt.
Play with fire?
With no official announcement yet, financial experts wonder if borrowers are taking a risk by taking out loans based on a politician’s campaign promise.
“Borrowers who took out student loans because they thought the debt would be forgiven took a gamble,” said Leslie Tayne, founder of Tayne Law Group in New York.
“Student loan forgiveness is not guaranteed until it is enacted or decreed by executive order – and even then we can expect lengthy legal challenges.”
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Who qualifies for student loan forgiveness is another risk-laden proposition for recent borrowers.
“I suspect a lot of these people would have gone to school and taken loans regardless of loan forgiveness to further their education,” said Meagan Landress, consultant at Student Loan Planner and certified loan professional. students.
“But this cancellation would probably affect those who had already borrowed and graduated, so if someone was borrowing money for the sole purpose / expectation of the cancellation of the loan, it was a bad decision because that might not apply to you.”
Why should colleges be dropped out?
A question circulating on social media, on backyard patios, and in restaurants and bars across the United States is whether or not student loan forgiveness is fair to Americans who don’t have never taken out a student loan.
It’s complicated, say financial experts.
“Student debt forgiveness is right, although not all Americans have this burden,” Tayne said. “Many have described the student loan landscape as predatory for several years, leaving many borrowers with debt they could never repay on their own.”
Even so, simply handing over the debt does not solve the long-term problem. “What would be fair is for the Biden administration to pass legislation that regulates the cost of higher education and reduces the amount of interest borrowers will have to pay,” Tayne noted.
Landress agrees with that sentiment.
“It’s a complex issue that can be debated back and forth,” she said. “Is it just for those who don’t have a student loan or for those who have already paid it off? No it is not. But could it change the life of a low-income person who hasn’t graduated and is struggling to make ends meet? Yes, it could.
The bigger question is what is being done to settle the start of the student loan, where colleges and universities regularly charge tuition fees that historically rise well before inflation.
“Student loans are a symptom of bigger problems,” Landress added. “Student loan forgiveness is a small band-aid for a bleeding system.”